The gap between conventional milk price and fixed price milk continues to widen, and while some processors have implemented a top-up payment to help address the price gap, others have not.
On most dairy farms, production rises towards peak supply in May, so the negative impact seen in the milk cheque for the average dairy farmer is probably at its most acute.
In our example we assume a dairy farmer is supplying 750,000 litres annually, with 15% of their milk locked in to a fixed price scheme.
The farmer in the example has produced 333,913 litres during the first five months with 73,565 litres supplied in May, 69,797 litres in April, 69,118 litres in March, 59,047 litres in February and 62,385 litres in January.
Dale Farm’s fixed price scheme pays a base of 29p/l from October to March, reducing to 26p/l for April to September.
To date, the co-op has yet to offer any top-up payment on fixed-price milk, meaning the scheme currently trails its conventional base price by 16.05p/l.
Applying the respective monthly base prices to 85% of the farmer’s milk supply this year, plus the fixed price on 15% of supply, milk sales over the first five months come to £122,775. This excludes bonus payments on milk quality and volume.
If the farmer supplied 100% of milk at conventional base price, milk sales for the same five-month period come to £128,112.
This means the farmer in the fixed-price scheme is down £5,337 so far this year, or 1.6p/l on all milk produced during the outlined period.
Lakeland Dairies operates two fixed-price schemes which pay 28p/l and 29p/l from October to March, reducing to 26p/l and 27p/l from April to September respectively.
However, the co-op was the first processor to apply a support payment on fixed-price milk, adding 7p/l from April to December 2022.
If the farmer in the example had 15% of milk committed on fixed price schemes, milk sales from January to May amount to £121,568 excluding payments on milk quality and volume.
Where 100% of milk is supplied at conventional base price, the farmer would be £3,689 better off, with sales of £125,257 before top ups for milk quality.
Aurivo’s main fixed price scheme pays a base of 27.5p/l each month, but a 4p/l support payment increased this to 31.5p/l from April.
From January to May, at 15% of supply on a fixed price, milk sales come to £122,581 excluding payments on milk quality.
Where 100% of milk is supplied at conventional base price, income increases to £126,997, which is a difference of £4,415.
Glanbia Ireland is the only other processor with a fixed price scheme in operation. It pays a base of 27.5p/l, although a second scheme was introduced in April that pays a base of 38p/l this year.
A support payment of 2.5p/l was also introduced on fixed price milk for April, increasing to 3.75p/l in May.
But assuming the farmer is only committed to 15% of supplies in the first scheme, milk sales come to £126,019 from January to May. That works out at £5,239 less than where 100% of milk is sold at conventional price.
With analysts forecasting that dairy markets will hold firm throughout the remainder of the year, farmers will continue to incur significant reductions in incomes unless further support payments can be offered.